Bitcoin mempools aren’t what they used to be, at least when measured by unconfirmed transaction levels. Network usage is down from the market peak in 2021, and emptier mempools lead to cheaper fees, both of which have some noticeable effects on the network and its users.
Mempool Basics
“Mempool” is a suitcase of “memory pool”, which is the label given to the storage repository for Bitcoin transactions awaiting confirmation and inclusion in new blocks by miners. Each node has its own transaction mempool, but in conversation Bitcoin mempools are usually referred to as “the mempool”. Mempool levels – measured by weight in virtual megabytes (vMB), total number of transactions or volume of fees – fluctuate with daily use of the Bitcoin network. And when a node receives a new block, the transactions included in this block are removed from the mempool.
A relatively full mempool indicates that network usage is high and miners earn significant revenue from transaction fees. Empty mempools signal less network usage and therefore lower royalty income for miners.
Mempools are often empty these days
Bitcoin memory pools have been steadily emptying for eight months. Compared to the relatively high levels seen in mempools through April and May 2021, the weight of mempools in vMB and transactions have fallen and stabilized since early July 2021.
On Twitter, a tracking bot called @mempool_alert is a handy tool for monitoring when mempools are emptying. The account tweets alerts after each block that clears all pending transactions in the mempool owned by the node managed by whoever manages the Twitter account, which serves as a fairly good proxy for mempool levels for nodes in the network.
The increase in mempool cleaning frequency began in July 2021 and has continued to this day, with mempool levels remaining largely unchanged. The chart below shows the daily number of blocks that have cleared the mempool for the past two months or so, visualizing the latest data for this ongoing trend.
The increase in Bitcoin mempool clearing frequency began in July 2021 and has continued to this day.
From this subset of recent mempool data, the time series shows an average of about 20 blocks per day that completely clear the mempool. Also, the five days with more than 30 blocks that cleared the mempool stand out. And with an expected average of 144 blocks mined per day, those days saw over 20% of all blocks emptying the mempool.
Why Mempools Are Weak
In July 2021, low mempool levels coincided with a significant drop in hash rate and price after China’s mining ban. Usually a drop in the hash rate causes the mempool to fill up because fewer miners are processing transactions, but the mempool was emptier this time because, at the same time as miners were forced offline in China, transaction volumes on Bitcoin also fell.
Even though the bitcoin price hit new all-time highs a few months later in late 2021, the mempool remained empty. Hash rate and mining difficulty also rebounded significantly at the end of last year, but the mempool still remained empty.
Exactly why mempool levels are low is an open question. The increased adoption of Bitcoin’s layer 2 protocols (e.g., Lightning Network) is one possible explanation. But the better question is: does it matter?
Mempool Cyclic Models
The current status of Bitcoin mempools has already been seen. As recently as the last bull market, pending trade levels spiked from late 2017 to early 2018. By April 2018, the mempool was essentially empty again and remained so until the start of 2020.
For most of 2020, mempool levels started to climb. The number of transactions skyrocketed from January 2021 to early June 2021 before returning to pre-2020 levels, bringing the mempool to its current frequently emptied state.
The screenshot below of a mempool visualization created by German developer Jochen Hoenicke shows the two iterations of this mempool model.
Source
And of course, that begs the question, is bitcoin in a bear market again? It is not possible to make this determination based on the mempool, but the low transaction levels and low income certainly suggest that fewer people are using the Bitcoin blockchain today compared to a year ago.
But this is definitely not a bear market for miners, with hash rate and difficulty continuing to climb. And because the Bitcoin network works well at any mempool level, users and miners are largely unaffected. The most obvious effect on miners is a significant reduction in royalty revenue. At the time of writing, the fees accounted for 1.08% of total Block Rewards revenue. In the short term, this matters very little, but miners obviously expect this not to last for years to come, as mining subsidy revenue decreases with each halving.
Empty Mempool Opportunities
Low mempool levels mean cheap transaction fees, and low fees give bitcoin holders the ability to consolidate their unspent transaction outputs (UTXO) within each wallet or across multiple wallets. UTXO consolidation (or “wallet consolidation”) is simply a process of combining small chunks of bitcoin in a single wallet or many wallets into larger chunks of bitcoin represented by fewer and larger UTXOs.
An address with many small UTXOs can be consolidated by simply spending the entire balance held by that wallet to a new address. All the different existing UTXOs will each be represented as a separate input in the spend, and the output will be a single UTXO to the new address. Consolidation accomplished. Eventually, as the new wallet receives more transactions, these other UTXOs can be consolidated by simply repeating this process.
Why consolidate?
Privacy, security, and cheaper fees are all reasons to consolidate. Continually receiving expenses to the same address(es) is a notoriously bad bitcoin privacy practice. Address reuse is important, and with increased privacy comes additional operational security.
Consolidating UTXOs allows lighter transactions to be spent (measured by vMB weight), and when network usage rebounds, it reduces the overall transaction fee spent by a consolidated user. The larger (or heavier) a transaction is, the more expensive it becomes. And transactions with multiple entries (i.e. distributed UTXOs) are more expensive than transactions from a consolidated wallet. Consolidation is usually at the forefront of social media conversations when fees are low and the mempool is empty, not when network usage is high, because consolidation under these conditions goes against the grain. one of the objectives (i.e. cheaper expenses).
Privacy is also a concern when consolidating. Mixing funds from public or KYC addresses with private or anonymous addresses, for example, would harm more than help a user’s privacy, for example. And there’s never a good reason to consolidate all funds into one address.
With little indication that mempool levels will suddenly increase and transactions will become more expensive, readers probably have some time to consider their own UTXO consolidation and learn more about the process. Here are some additional resources that will help a planning beginner consolidate:
- Casa has published a helpful explainer on UTXO consolidation.
- Andreas Antonopoulos produced a short video explaining UTXO consolidation.
- Reddit users on r/Bitcoin have shared helpful comments on UTXO consolidation here.
Conclusion
Mempool levels are low and the network may be repeating a post-bullish mempool cycle starting in late 2017. But even though mempools are emptying more frequently, the network continues to operate normally, even if miners are gaining much less income. And times when the network is relatively underutilized and transaction levels are low are opportune times to shore up UTXOs. The mempool will inevitably start to fill up at some point in the future, but for now hardly anyone is complaining about the cheap fees.
This is a guest post by Zack Voell. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.